Victory and Vindication for Castle Law Group in Landmark Decision

“This is an incredibly important decision on the right of law firms and their clients to determine what level of service they demand,” is how Larry Pozner, Partner at Reilly Pozner LLP and lead defense attorney in State of Colorado v. The Castle Law Group, LLC, et al., summed up the ruling that came down this week. The litigation had the State claiming that the defendants (which included not only the foreclosure law firm but former partners Larry and Caren Castle) padded billings in order to take in millions in illegitimate profits from the banks they represented, as well as the affected homeowners and real estate investors who later bought the foreclosed houses at auction.

On Tuesday however Denver District Judge Morris Hoffman ruled against the state and brought the five-year case to a close. In a 92-page opinion Hoffman stated that the Castles and the other defendants including other foreclosure-related companies did not take advantage of the position banks were in to move foreclosures quickly during the housing crisis, instead he came to the conclusion that:

“These foreclosure law firms were not Wall Street firms with their own economic power. For the most part they were small, local firms specializing in foreclosures, whose very existence depended on the willingness of their clients to keep referring foreclosures to them. As a result, the lenders and servicers could, and did, dictate the terms they would accept from their foreclosure law firms, with virtually no negotiation.”

“The result of the case substantiated our position throughout this whole ordeal that we did not do things like the other law firms that settled with the attorney general,” said Larry Castle. “I think it vindicated my wife’s reputation, who’s been in the [foreclosure] industry for over 25 years and is well respected.”

While the victory is overwhelmingly in the defendants’ favor, Hoffman did determine that the Castles failed to notify Fannie Mae and Freddie Mac about their indirect financial interest in a summons company (Absolute Posting & Process Services, LLC). For that, the Castles must pay a $119,500 civil penalty. This is a far cry from the $16 million to $26 million originally sought by the state.

“The court found that the actions of the Castles were in keeping with their obligations to their clients, and were appropriate steps to protect clients,” said Pozner. “But deep down, where it begins is this strange anti-American notion that an attorney general can tell a client and its law firm how much they should spend protecting themselves. [Castle Law Firm] aimed to be the best. Its clients were of course the most sophisticated financial institutions in America.”

“We told the Attorney General going in that we do things differently than some of the other law firms, and they ignored us. I believe the ruling vindicates the reputations of our law firm, my wife, our selected vendors and the other lawyers, managers, owners and staff that worked for these law firms and vendors. Unfortunately, the result of these claims, and what I believe were less than truthful statements made by other lawyers and certain investigative reporters resulted in the closure of these enterprises and the loss of jobs by hundreds of good people in six states and two countries who did it the right way, for years if not decades, on behalf of the law firms’ clients.” Larry Castle said.

One of Pozner’s biggest problems was with the State’s handling of the case. According to Pozner, the State attempted, vainly, to argue that the banks were “unsophisticated clients,” and Pozner argued that this just wasn’t true.

The Castles’ use of a product called “title commitment” was, according to Pozner, the best way to provide coverage to their clients. “And the state is arguing, ‘Why didn't you buy something cheaper?’ Well that's not the business of government to tell law firms how best to serve their clients,” concluded Pozner.

Overall, the State could not find record of wrongdoing on the Castle’s part. The failure to report to Fannie Mae and Freddie Mac was the only issue Hoffman found. “Ultimately, the question is whether Plaintiffs have proved that Defendants, in taking advantage of the extraordinary entrepreneurial opportunity presented by the economic crisis, crossed the line from lawful self-interest into deception or anti-competitive collusion,” Hoffman stated in his 92-page opinion. “With one exception, I find and conclude that Plaintiffs have failed to prove their case.”

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.